MMR causing broker lending bump

Legal & General Network director of housing and external affairs Stephen Smith believes the impending non-advised sales ban is the cause of a recent upshot in the proportion of mortgage business going through brokers.

As part of the MMR, which will be implemented in April next year, non-advised sales will be banned where there is any “interactive dialogue” between a customer and a lender.

However, consumers can change things like their repayment method, switch rates and take out retention deals without advice as long as they do not wish to borrow more.

If lenders write to a customer simply detailing their ranges, then the customer can proceed on an execution-only basis, as they have not been “steered”.

In June, however, the Financial Conduct Authority said it would allow pipeline applications to continue on a non-advised basis for three months after the introduction of the MMR as long as it is received before 26 April.

The introduction of the ban means it is likely to see the cost of providing sales in branches and over the phone increase and therefore making it less attractive for lenders.

Smith believes this will lead to lenders farming out a greater proportion of business to the intermediary channel and says recent figures from the Council of Mortgage Lenders demonstrate this – even before the ban has been brought in.

In the second quarter of 2013, 57.5 per cent of business went through brokers, compared with 53.5 per cent in the first quarter.

Smith says: “We are seeing very clear indications that lenders are starting to favour intermediary distribution channels. Although you could point to capacity constraints as a reason for this shift we believe that MMR is a significant factor.

“The real impact will be made clear in Q1 and Q2 next year as lenders deliver their new capabilities but the recent spike highlighted by the CML is unlikely to abate as the new rules make the role of advisers more central to supporting lenders and borrowers alike.”

The regulator maintains that the MMR is distribution “neutral”.

In January, Mortgage Strategyrevealed Barclays had decided to scrap all non-advised sales, which made up around 3 per cent of its total mortgage transactions.